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Every little does ‘help’, apparently.

By Mike Cunningham On September 30th, 2014

Reading the wash-up regarding the shock, and I do mean ‘shock’ of the latest and biggest Tesco scandal, I remembered something which I had forgotten about a long time back, which is that large suppliers of huge supermarket chains are routinely pressurised to kick-back huge sums of cash to the supermarket in order to keep their contracts to supply their goods, and remain on Tesco’s shelves; a system which is also routine. What many people also forget is that, in order to keep up their profit margins, the cost of the kick-back is added to the cost of the goods supplied, so you, the customer, pay for the supplier’s costs, kick-backs and promotions, so where does that leave the ‘promise’ of responsible marketing, with one eye at least on the cost to the consumer at the till?

But leaving behind, if you would, the whole slightly sleazy idea of making suppliers pay to have their produce and goods featured on the shelf-spaces of the largest Retailer in Great Britain, and let us concentrate instead on the truth behind firstly the profit statements, and then the profit warnings, all of which must have been known about by their auditors, namely one of the BigFour, PriceWaterhouseCoopers. The news that Tesco had virtually submitted a false prospectus, in terms of their Auditors giving the FTSE retailer a clean bill of health in May, and confirming that healthy statement by shouting out about the huge profits forecast  in late August; and then suddenly bringing out the bad news in September, seems to have been missed by just about all the financial commentators, excepting the Guardian’s Aditya Chakraborty. If the new Chief Executive is to be believed, a single whistleblower exposed the scheme; when it should have been painfully obvious to a large number of highly-paid financial people whose very jobs should have depended upon noticing what was, apparently, right in front of their bleeding noses.

Somebody should be facing Court proceedings, and those charged should include, not only senior Tesco people, but top tier people from PwC as well.

4 Responses to “Every little does ‘help’, apparently.”

  1. It isn’t the quality of the merchandise that counts, its the size of the ‘kickback’ that is so important, and it doesn’t need much guesswork to surmise that it will fall into the ‘cash-in-hand’ category.

    So much for a company building a reputation for providing quality goods, price is all that matters to most of the British public, – the cheaper the better, – ‘never mind the quality, feel the width’, or in modern language, it’s quantity not quality that matters.

    It isn’t just the political world that has lost its integrity, the commercial world has followed closely in their footsteps.

  2. The demand for kickbacks is weird – but at the end of the day the supermarket must compete with every other retailer, so hopefully the customer still gets a fair deal.

    I wonder if the lean, low price German supermarket machine aldi ( which has a big presence in the US now, which including Trader Joes ) has the same systems?

  3. About the only thing my wife prefers from Tesco is their bread now that they have opened a new bakery at our local branch; apart from that she will only buy branded goods and vegetables.
    Their meat in particular seems to be of quite poor quality, she’d rather pay a bit more at Waitrose or M&S for better quality. We had a couple of Tesco “Finest” meat pies; the meat was almost inedible. If those were their finest, I hate to think what their ordinary/value pies are like!
    The “Kickback” also explains why certain makes of goods suddenly disappear from their shelves, presumably these companies refused to cough up.
    We’ve also done some calculations, on our average shop, the Club Card points are worth less than the free newspaper you get at Waitrose when you spend a fiver!

  4. As the linked article points out, the auditors expressed concern in the annual accounts on the level of “judgement” involved in identifying the amount of kickbacks to accrue for. And PWC did not “sign off” on the subsequent profit forecast since that is not a statutory report.

    Tesco was accused of “aggressive” accounting about a year ago by (I think) a US investment fund. Left to themselves, management will always want the accounts to show the best possible figures. It is up to the auditors to ensure that the lilly is not gilded.

    The “big four” have a lot of explaining to do about how they signed off on bank accounts which were subsequently shown to have greatly over-stated profits. This was most obvious in 2008, but it has continued ever since, most recently with the Co-Op which this year wrote off another £500 million or so of bad debts, and all but admitted that the write-off should have occurred at least one year earlier, if not more. Which begs the question of what its auditors were doing to ensure that those earlier accounts presented “a true and fair view” as required by law.